Working Paper: NBER ID: w1826
Authors: Michael D. Hurd
Abstract: Empirical studies have indicated that the elderly seem to accumulate wealth after retirement, and that the desire to leave bequests is an important determinent of saving behavior, both kinds of results have cast doubt on the validity of the life cycle hypothesis of consumption. In the first part of this paper, a model of bequests is specified, and the implications for consumption and wealth trajectories are derived. The main result is that, even with a bequest motive, consumption generally decreases with age after retirement, and that wealth will also decrease for all but wealthy households. In the empirical part of the paper, wealth changes of retired households are reported over 10 years of panel data. Contrary to many results from cross-section data, the elderly do dissave: over 10 years the wealth of the elderly in the sample decreases by about 27 real. A test for a bequest motive is proposed. There is no evidence whatsoever for abequest motive.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Elderly individuals dissave over a ten-year period (D15) | Decrease in wealth (E21) |
| Bequest motive impacts consumption and wealth trajectories of the elderly (D15) | Wealth declines with age (G51) |
| Living children (J13) | Savings behavior of elderly individuals (D14) |
| Wealth changes align with predictions of life cycle hypothesis (D15) | Support for life cycle hypothesis (D15) |